Challenges in Creating Liquidity in the Carbon Market: CDM Projects Architrandi Priambodo TBLI Workshop on Carbon Market, Bangkok, 29 may 2008
Dec 16, 2014
Challenges in Creating Liquidity in the Carbon Market:
CDM Projects
Architrandi Priambodo
TBLI Workshop on Carbon Market,
Bangkok, 29 may 2008
Carbon Market at present
Why CDM?
CDM Challenges
Risks associated with the projects
Risks associated with Validation and verification
Validation and Verification Experiences
Ensuring the CER liquidity
Contents
Carbon market at present
Source: State and trend of Carbon market 2008, The World bank
Why CDM?
CDM initiates involvement of Developing countries in Climate change action
The only scheme under Kyoto Protocol that involve developing countries
CER contributes significant carbon credit transaction: but how about its liquidity?
The CDM’s biggest strength has been its ability to bring developing and developed countries and the public and private sectors together to reduce emissions cost-effectively
CDM ChallengesOut of 3,188 projects in the currently pipeline, 2,022 are at validation stage.
Market participants report that it is currently taking them up to six months to engage a Designated Operational Entity (DOE), causing large backlogs of projects even before they reach the CDM pipeline
Projects face an average wait of 80 days to go from registration request to actual registration. The Executive Board has requested a review of several projects received for registration, has rejected some of them, and has asked project developers to re-submit their projects using newly revised methodologies. There is a very short grace period allowed to grandfather the older methodology, and the additional work adds to delays and backlogs.
Projects are currently taking an average of 1-2 years to be issued from the time they enter thepipeline. Over 70% of issued CERs come from industrial gas projects, with the vast majority of energy efficiency and renewable energy projects remaining stuck somewhere in the pipeline
Source: State and trend of Carbon market 2008, The World bank
CDM: Risks associated with the projects
Project finance: there are cases where project finance of the project are delayed, or financial closure could not be reached
Delay in construction: e.g, in fuel switching project, delay in gas supply may prevent the project operation, in other cases, equipment delay would be the source of the problem.
Project owner credentials: financial condition of the project owner and experience in doing similar type of project activities,
Local permits, licences, depending on type of projects: e.g., power purchase agreement for a power generation project powered by renewable energ resources, Environmental Impact Assessment, etc
Risks associated with Validation and verification
The main constraint of the current CER delivery: Time spent during validation and verification
Problems faced during validation and verification:
Baseline and Monitoring methodology Instrumentation and monitoring equipments Additionality Time schedule of the Designated Operation Entity: some
validation process have taken more than a year CDM modalities and procedures: Need to follow EB schedule! CER Issuance: under delivery
Validation and Verification Experiences (1)Dealing with Designated Operation Entity (DOE):
Be transparent but concise Do not show unnecessary details which creates confusion Get DOE timeline and always remind their time schedules Confident and clear in responding the questions
Appropriate instrumentation and monitoring equipments according to the approved baseline and monitoring methodologies some examples:
In a project where flare needs to be measured, the required thermocouple used is type N which can measure temperature of 5000CThe required calorific value to be monitored is Net Calorific Value, while in the practical condition, data that could be obtained is Gross Calorific ValueThe type of flowmeterCalibration requirement
Monitoring frequency and how data is stored needs to be stated clearly in the PDD. The record of monitoring frequency should be available for verification purpose
Additionality Most project rejection is because additionality is not clearly demonstrated The project developer should keep the record to demonstrate The chronology of the project, particularly the decision of
the project to be a CDM project In demonstrating the financial analysis, a selection of appropriate financial threshold (IRR, or FIRR, or NPV) is very
crucial Please be prepared to provide anecdotal evidences, such as journals, literatures, etc
Validation and Verification Experiences (2)
Additionality
Not being able to demonstrate additionality: Main cause of rejection of CDM project registration
Important feature: evidence that CDM has been considered in the beginning of project
Financial analysis: selection of the appropriate parameters (IRR? Project IRR? Equity IRR? NPV?) and the appropriate benchmark/financial threshold (Commercial interest rate? WACC?)
Ensuring the CER liquidity
Risks mitigation at preliminary stage: carbon due dilligence to assess not only the potential carbon credit to be generated but also the additionality point of view and the required monitoring equipment and apparatus. Compared with the economic/financial benefits of the project and the potential carbon credit generated
Make sure that the appropriate baseline/monitoring methodology is applied
Selection of DOE: based on credential, time delivery and workload
Appropriate monitoring equipment
Human resources!
Asia Carbon Global: An overviewGroup’s activities conceptualized, researched and developed since 2001
Founded : Feb 4 2003 two years ahead of Kyoto coming into force
One stop shop services : Carbon Advisory through Carbon Trading
New services : VERs Trading & Registry & Projects monitoring
Presently operating 17 entities in 9 countries
Presence in The Netherlands (Annex I) : to aggregate Buyers
Asian presence in Singapore (Non Annex I) to develop unilateral CDM projects and
also Aggregate Sellers of CERs
Strategic Alliance – Japan, China, Australia, Korea, Bangladesh & Pakistan
Centres of Excellence in Singapore, Vietnam, India, Indonesia
Collaborating with Centre of Excellence in China
Recently launched operations in UAE including Pakistan
Current portfolio includes over 165 projects with over 35 Mn CERs potential
The supreme reality of our time is the vulnerability of our planet.” The supreme reality of our time is the vulnerability of our planet.” – John F. Kennedy– John F. Kennedy
Thank youThank you
Asia Carbon Emission Management Asia Carbon Emission Management (Thailand) Co. Ltd(Thailand) Co. Ltd
[email protected]@asiacarbon.comwww.asiacarbon.comwww.asiacarbon.com
PT. Asia Carbon IndonesiaPT. Asia Carbon IndonesiaJl. Villa No. 7, jakarta 12930Jl. Villa No. 7, jakarta 12930
IndonesiaIndonesia [email protected]@asiacarbon.comwww.asiacarbon.comwww.asiacarbon.com